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Property Taxes Continued: Small Business Financials, Part 5

The Cook County property tax structure drives the development and business investment we see in our community. It adds another financial challenge to small businesses hoping to compete.

To oversimplify: the portion of county and local government budgets funded by property taxes is apportioned to property owners based on the assessed value of the properties. Total property value is the tax base. Economic development seeks to increase the tax base, so that everyone within it pays a smaller share. The assessment process determines how much each individual property within the tax base contributes.

In every Illinois county except Cook, owners pay taxes based on value, regardless of whether the property is zoned commercial or residential. In DuPage, taxes for a $400,000 home are the same as a strip mall building worth $400,000.

In Cook, commercially zoned property is assessed at 2.5 times more than residential property. A $12,000 tax bill on a $400,000 home would be $30,000 for a commercial property. This higher business expense is unique here and a competitive disadvantage. Not only is the total tax bill high, but commercial properties shoulder a larger burden relative to residential properties.

Businesses that locate here anyway rely on customer density, talent and access to transportation to create the value needed to offset the higher tax expense. But sometimes that isn’t enough.

What happens when the property is mixed-use? A building with one or two levels of retail space topped by residential units? That property is assessed as residential, not commercial. Thus, a significantly lower tax bill.

That is why we rarely build new office buildings or free-standing commercial. That is why you see so many mixed-use developments. Even adding a single apartment into a small commercial building could change the tax rate for the entire property.

Individual tax bills will decrease only by cutting services, collecting more fee revenue and sales tax or building a larger tax base, spreading the bill across more properties. Building a larger tax base means new investment. Expect to see residential and mixed-use. Cook County’s tax structure favors that type of property development.